Most Read

When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
12wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5wks ago, reco’d trimming.
Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.

JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters

Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer.
That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence.
News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been.

Locals Driving Corporate Reforms and 10 Korean Companies Recently Announcing Share Cancellations

In a recent discussion with a client, one of the questions that was raised was regarding the impact the local investors are having on the corporate governance reforms in Korea.
The number of local investors in the Korean stock market has jumped in the past few years from 5.3 million in 2017 to 14.4 million in 2022.
All in all, I think Korea is about 3-5 years behind Japan in various corporate governance reforms. So it has a lot of catching up to do.

Perfect Medical: Post Card From HK, Yield of 11.5%

By Sameer Taneja

Perfect Medical Health (1830 HK), post a correction of consumer discretionary stocks in HK, now trades at a yield of 11.5%, with cash&investments representing 24% of the market cap.
HK is experiencing a dip in consumer sentiment, and the company isn’t immune to it, but flat sales/profitability, a 24% net margin, and >40% ROE provide great margin of safety.
The stock trades at 9.3x FY24 PE and 11.5% yield (assuming a 110% payout average across company history) with a growth option once the HK economy kickstarts.

ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices

Nearing the end of the review period, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
There are overlapping names for the two indices and some of the stocks will also have flows from the CSI Smallcap 500 Index – Shang (SH000905 INDEX) trackers.
The potential adds have outperformed the potential deletes between 9-10% for both indices over the last month with the deletes dropping a lot more than the adds.

Azure Min’s (AZS AU)’s “Boost” As Gina Ups Stake in Lynas

On the 8th April, Azure Minerals (AZS AU) shareholders overwhelmingly approved the Sociedad Quimica y Minera (SQM US)/Gina Rhinehart’s Hancock transaction. Shares promptly closed down 7% on regulatory approval fears.
Those fears are unwarranted. China’s Tianqi Lithium would indirectly own just ~11% in Azure post-deal. China has recently lifted anti-dumping tariffs on a range of Aussie products. FIRB won’t block.
An expected approval may have spurred Gina to buy more shares in Lynas (LYC AU). Why buy now if FIRB dings Azure; that outcome would push the whole sector lower.

What Is TSMC Telling Us About Semi Supply Chain Stories at Its Investor Conference?

By Andrew Lu

TSMC reiterates 2024 sales y/y growth of 20-25% but revises down 2024 global semiconductor y/y sales from over 10% to 10% and global foundry sales growth from 20% to 15-19%.
No more Moore’s Law: After 3 years ramp up gap between N5-N3, TSMC confirms 10-11 quarters of ramp up gap between N3 and N2 due to longer production cycle.
Driven by stronger digital consumer (33% q/q), HPC (3% q/q), IoT (5% q/q) sales but weaker smartphone IC (-16% q/q), TSMC reports 1Q24 sales decline of only 5% q/q.

Shinko Electric (6967 JP): Widening Spread Is an Opportunity

Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread widened from a low of 3.1% on 14 March to 7.0%.
The widening spread can be attributed to China SAMR approval timing, earnings risk, Ibiden Co Ltd (4062 JP)’s material underperformance lowering the break price and a large fund liquidating positions.
The deal break risks remain low with the timing remaining the key risk. The current 7.0% spread is an attractive opportunity to add.

Inageya (8182 JP): Share Exchange Offer from USMH (3222 JP)

Inageya Co Ltd (8182 JP) announced a share exchange offer by United Super Markets (3222 JP) at 1.46 USMH shares per Inageya share.
The share exchange aligns with Aeon Co Ltd (8267 JP)’s well-flagged intention of making Inageya a wholly-owned subsidiary of USMH.
Aeon’s 50%+ shareholding in Inageya and USMH facilitates the two EGM votes. The deal metrics are broadly fair for both sets of shareholders.

SoftBank (9984 JP): Arm Out-Stretched (On Valuation) And Is JPY Depreciation Largely Done?

By Victor Galliano

Arm – which we estimate accounts for 45% of SoftBank group’s equity value – is experiencing limits to its “growth at any price” stock status; the shares fell 12% yesterday
The JPY’s depreciation is supportive of the group NAV, but with the Fed’s hawkish stance well known and BoJ expected to raise interest rates, JPY weakness may be largely done
SoftBank shares trade at a wide 53%+ discount to the estimated NAV; yet we see downside risks to Arm’s valuation, along with the potential for JPY weakness to reverse

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Apr 18

Most Read: Kokusai Electric , Shinko Electric Industries, JSR Corp, Hang Lung Properties, J&T Global Express , Lynas Corp Ltd, Shenyang Xingqi Pharmaceutical, Hollysys Automation Technologies and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Kokusai Elec (6525) – The Much-Anticipated Lockup Expiry
Shinko Electric (6967) – Break/Gap Risk Update
JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters
Hang Lung Group: Thoughts On HLP’s Scrip Dividend
J&T Global Express IPO Lock-Up Expiry – Tiny Float with 87%+ Stake Lockup Release Worth >US$8.8bn
Hang Lung Properties (101 HK): Scrip Div Helps the Family to Chip Away at Minorities
Lynas (LYC AU): Gina’s Stake Revives MP Materials Merger
ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices
Hollysys (HOLI US): This Is A Buy
Ohayo Japan | A Healthy Correction

Kokusai Elec (6525) – The Much-Anticipated Lockup Expiry

Last autumn, Kokusai Electric (6525 JP) was IPOed by KKR. The lockup expires next week, on 21 April 2024 (a Sunday). That frees up about 70% of the stock.
KKR’s own stake is worth about US$2.8bn. It is not clear that Applied Materials, Qatar, or the Koch Strategic Platforms stakes would be for sale (now, or near-term).
There is an interesting schedule of events between here and a likely offering date. It pays to pay attention to the details.

Shinko Electric (6967) – Break/Gap Risk Update

When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
12wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5wks ago, reco’d trimming.
Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.

JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters

Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer.
That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence.
News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been.

Hang Lung Group: Thoughts On HLP’s Scrip Dividend

And eagle-eyed reader spotted Hang Lung Properties (101 HK)‘s scrip dividend option for the FY23 final dividend. That’s the first time I’ve seen HLP provide this alternative.
Over the years, the Chan family and Hang Lung (10 HK) have chipped away at HLG’s and HLP’s minorities. HLP and HLG are currently trading at all-time low P/Bs.
This scrip dividend, which takes a page out of Jardine Matheson (JM SP)‘s playbook, would boost HLG’s stake in HLP to ~63% from 61.24% currently; if opting only for scrip.

J&T Global Express IPO Lock-Up Expiry – Tiny Float with 87%+ Stake Lockup Release Worth >US$8.8bn

J&T Global Express, a global logistics provider, raised about US$500m in its Hong Kong IPO in Oct 2023. Its pre-IPO investors will be released from its IPO linked lockup soon.
As per Frost & Sullivan (F&S), the firm is the leading express delivery business in Southeast Asia, with a 25.4% market share as per 2023 parcel volume.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

Hang Lung Properties (101 HK): Scrip Div Helps the Family to Chip Away at Minorities

In its final results on 30 January, the Hang Lung Properties (101 HK) board declared a final dividend of HK$0.60 per share, which can be paid in cash or by scrip.
The Chan family’s share of outstanding shares has steadily increased from 53.15% in 2013 to 61.89%. The scrip dividend could increase the family to 63.57% of post-dividend outstanding shares.
The Chan family have plenty of headroom to chip away at minorities before breaching the 25% public float requirements. HPL’s valuation is undemanding, but a privatisation offer is unlikely.

Lynas (LYC AU): Gina’s Stake Revives MP Materials Merger

Lynas Corp Ltd (LYC AU) is the proverbial Aussie battler. Post the 2018 general elections, the new Malaysian government put Lynas on notice it may halt it rare-earth operations.
Since then, Lynas’ Malaysian facility, which cuts into China’s near-monopoly on processing elements for defense/aerospace/EV/electronics industries, has (mostly) operated without substantial disruptions. Profit peaked in FY22; but has since rolled-over.
Gina Rhinehart’s Hancock has now disclosed a 5.82% stake in Lynas; having disclosed a 5.3% stake in MP Materials (MP US) earlier this month. Lynas confirmed discussions with MPM in February.

ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices

Nearing the end of the review period, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
There are overlapping names for the two indices and some of the stocks will also have flows from the CSI Smallcap 500 Index – Shang (SH000905 INDEX) trackers.
The potential adds have outperformed the potential deletes between 9-10% for both indices over the last month with the deletes dropping a lot more than the adds.

Hollysys (HOLI US): This Is A Buy

On the 8th February 2024, 85% of Hollysys Automation (HOLI US ) shareholders present and via proxy, voted for Ascendent Capital’s Offer. After three-plus years, the end was finally in sight.
Then crickets. The merger was to complete in the 1Q. On the 15th April, HOLI released an accountant resignation notice. No word on dissenters or regulatory approvals. Shares sold off.
The accountant resignation is a nothing burger. HOLI should lift their game and provide more transparency on the outstanding merger conditions. Still, the spread is attractive. This is a buy.

Ohayo Japan | A Healthy Correction

The market is experiencing its first bout of volatility this year, with the S&P trading below 50-day moving average
Toshiba is considering cutting its domestic workforce by 5,000, approximately 7% of its total in Japan, in its latest move to accelerate restructuring
ASML’s Q1 orders fall short, reflecting chipmakers’ cautious stance on equipment purchases.

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Apr 17

Most Read: Pasona Group, Kokusai Electric , Sichuan Baicha Baidao Industrial, Fuji Oil Co Ltd, HPSP, Hollysys Automation Technologies, Belle Fashion Group, Megastudyedu Co, Ltd. and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Pasona (2168 JP) Special Div – Too Small to Matter
Kokusai Elec (6525) – The Much-Anticipated Lockup Expiry
Kokusai Electric IPO Lock-Up – KKR Will Be Tempted by the US$2.7bn Release but Might Have to Wait
Baicha Baidao (2555 HK) IPO: Valuation Insights
Idemitsu (5019): First SumiChem’s, Now JERA’s Stake in Fuji Oil (5017) To Go to 22%. It’s Coming…
Market Chats About What Really Went Down with HPSP This Morning
Hollysys (HOLI US): Keep Calm as Closing Date Slips
Multiple Positive Catalysts Ahead Of Q124 Earnings Season
Belle Fashion IPO: The Investment Case
Megastudy Education: A Major Shareholder Return Policy in 2024-2026

Pasona (2168 JP) Special Div – Too Small to Matter

On Friday, Pasona Group (2168 JP) announced its expected use of funds into the May 2024 results, including a special dividend plan, investment for growth, and “strengthening the operating platform.”
The plan will disappoint. The stock may get hit hard. The truth is somewhere in the middle. This is where active stewardship matters. So get stewarding.
A special div paid over 5yrs should be paid one-shot, now. If the company has plans worth supporting, set KPIs now, ask for money later. Good plans get good money.

Kokusai Elec (6525) – The Much-Anticipated Lockup Expiry

Last autumn, Kokusai Electric (6525 JP) was IPOed by KKR. The lockup expires next week, on 21 April 2024 (a Sunday). That frees up about 70% of the stock.
KKR’s own stake is worth about US$2.8bn. It is not clear that Applied Materials, Qatar, or the Koch Strategic Platforms stakes would be for sale (now, or near-term).
There is an interesting schedule of events between here and a likely offering date. It pays to pay attention to the details.

Kokusai Electric IPO Lock-Up – KKR Will Be Tempted by the US$2.7bn Release but Might Have to Wait

KKR raised around US$730m via selling some stake in Kokusai Electric (6525 JP) Japan IPO in Sep 2023. Its remaining stake will be released from its IPO linked lockup soon.
KE main business activities consist of the manufacturing, sales and maintenance service of semiconductor manufacturing equipment.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

Baicha Baidao (2555 HK) IPO: Valuation Insights

Sichuan Baicha Baidao Industrial (SCBCBDID CH), a leading freshly made tea drinks company, has launched an HKEx IPO to raise US$330 million. The shares will be listed on 23 April.
We previously discussed the IPO in Baicha Baidao IPO: The Bull Case and Baicha Baidao IPO: The Bear Case.
There are no cornerstone investors. Our valuation analysis suggests that Baicha is fairly valued at the HK$17.50 IPO price. Therefore, we would pass on the IPO.

Idemitsu (5019): First SumiChem’s, Now JERA’s Stake in Fuji Oil (5017) To Go to 22%. It’s Coming…

In the mid-late teens, four refinery groups merged to create two refinery groups – JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.

Market Chats About What Really Went Down with HPSP This Morning

By Sanghyun Park

This morning’s HPSP (403870 KS) situation began with Maekyung’s report, indicating Crescendo PE contacted local bankers for the controlling stake sale.
The surge in HPSP’s stock price after Maekyung’s report suggests Crescendo PE’s tacit approval, implying their involvement in the news’s emergence.
Despite the likely confirmed sale of Crescendo PE’s stake, timing remains uncertain due to disclosure rules. Continued monitoring is vital, considering potential market reactions later.

Hollysys (HOLI US): Keep Calm as Closing Date Slips

On 15 April, Hollysys Automation Technologies (HOLI US) issued a 6-K filing stating that Ascendent remains in the process of obtaining regulatory approvals.
The gross spread has widened to 8% as the closing date has slipped from the end of March guidance, and an updated timeline is lacking.
A delay in securing regulatory approvals is not uncommon. However, regulatory approvals should be forthcoming as the transaction involves Chinese entities (including a SASAC entity) acquiring a Chinese-focused company.

Multiple Positive Catalysts Ahead Of Q124 Earnings Season

By William Keating

PC, Smartphone Unit shipments both registering YoY growth in Q124
TSMC will beat guidance & likely guide Q224 up ~5% QoQ. Samsung’s pre earnings showed strong recovery in operating profit
Server unit shipments are on a ~17% YoY growth run rate

Belle Fashion IPO: The Investment Case

Belle Fashion Group (2007708D HK), the largest fashion footwear company in China, is seeking to raise up to US$1 billion in a HKEx IPO.
Belle Fashion originated from Belle International Holdings (2129452D HK), which was privatised in 2017. In October 2019, Belle International spun off its sportswear business as Topsports International Holdings (6110 HK).
The investment case rests on a market-leading position, return to growth, margin improvement, cash generation and modest leverage.

Megastudy Education: A Major Shareholder Return Policy in 2024-2026

On 16 April, Megastudyedu Co, Ltd. (215200 KS) announced a major shareholder return plan, driving up its share price by 14.2% to 60,400 won.
Driven by this attractive shareholder return plan combined with improving fundamentals, we believe that Megastudy Education’s shares could continue to outperform the market in the next several months.
The total shareholder returns including share buybacks/cancellation and dividends are 60% of the company’s non-consolidated net profit from 2024 to 2026.

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Apr 16

Most Read: Pasona Group, Guangzhou Automobile Group, Sichuan Baicha Baidao Industrial, Hanmi Science, Vodafone Idea , HD Hyundai Marine Solution , Tietto Minerals Ltd, Horizon Robotics and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Pasona (2168 JP) Special Div – Too Small to Matter
Get Your Pasona (2168 JP) Rump For Free
A/H Premium Tracker (To 12 Apr 2024): Liquid AH Premia Still Very Wide, The Right Spreads Behaving
Baicha Baidao (2555 HK) IPO: Valuation Insights
Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments
Vodafone Idea Placement – Very Well Flagged but Its Not Going to Fix a Whole Lot of Issues
ECM Weekly (15th Apr 2024) – Hyundai Marine, Bharti, Kayou, Zeekr, ChaPanda, Samsung, WT Micr, Sompo
Tietto Minerals (TIE AU): Zhaojin’s Revised and Final Takeover Offer Remains Light
Ohayo Japan | Escalating Tensions
Horizon Robotics IPO Preview: “Journey Together”, Strong Business Position and Market Share Gains

Pasona (2168 JP) Special Div – Too Small to Matter

On Friday, Pasona Group (2168 JP) announced its expected use of funds into the May 2024 results, including a special dividend plan, investment for growth, and “strengthening the operating platform.”
The plan will disappoint. The stock may get hit hard. The truth is somewhere in the middle. This is where active stewardship matters. So get stewarding.
A special div paid over 5yrs should be paid one-shot, now. If the company has plans worth supporting, set KPIs now, ask for money later. Good plans get good money.

Get Your Pasona (2168 JP) Rump For Free

Dai Ichi (8750 JP) agreed with Pasona (2168 JP) for Pasona to sell its shares back to Benefit One (2412 JP) in a buyback after Dai-Ichi’s Tender Offer for Benefit.
This process gives Pasona a tax advantage versus selling into a Tender Offer at the same price.
What does Pasona take home? ~¥2,822/share versus its last price of ¥2,733/share. Then you have stubs ops (conservatively worth up to ~¥1,960/share) and Pasona’s stake in Bewith (9216 JP) (~¥360/share).

A/H Premium Tracker (To 12 Apr 2024): Liquid AH Premia Still Very Wide, The Right Spreads Behaving

The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND’s consecutive buying streak ended on Monday 25-March, then started again. NORTHBOUND has started selling (but buying semi tech).
Hs rebounded vs As. AH Premia still wide. Fabulous two-week performance by the Quiddity Portfolio (+2.09% over the two weeks) on a delta 3:1 long H/short A

Baicha Baidao (2555 HK) IPO: Valuation Insights

Sichuan Baicha Baidao Industrial (SCBCBDID CH), a leading freshly made tea drinks company, has launched an HKEx IPO to raise US$330 million. The shares will be listed on 23 April.
We previously discussed the IPO in Baicha Baidao IPO: The Bull Case and Baicha Baidao IPO: The Bear Case.
There are no cornerstone investors. Our valuation analysis suggests that Baicha is fairly valued at the HK$17.50 IPO price. Therefore, we would pass on the IPO.

Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments

By Sanghyun Park

The local market anxiously awaits the family’s ability to pay by early May. Failure could prompt the Tax Service to sell their pledged stocks, including Hanmi Science shares.
Preventing Tax Service from selling Hanmi Science shares requires additional collateral, unlikely due to existing pledges. Rumor suggests mother and daughter may sell shares before May, followed by Tax Service.
Given negotiation uncertainty with KKR, it’s crucial to prepare for potential failure rather than solely relying on success, necessitating a pragmatic approach.

Vodafone Idea Placement – Very Well Flagged but Its Not Going to Fix a Whole Lot of Issues

Vodafone Idea (IDEA IN) plans to raise around US$2.2bn via a follow-on public offering.
The deal has been in the works for years and proceeds will be used for capex and short-term debt repayment.
In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

ECM Weekly (15th Apr 2024) – Hyundai Marine, Bharti, Kayou, Zeekr, ChaPanda, Samsung, WT Micr, Sompo

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
On the IPO front, the focus remained on HD Hyundai Marine Solution (443060 KS), even as Sichuan Baicha Baidao Industrial is gearing up to launch its IPO.
On the placement front, there were deals across India, South Korea and Australia.

Tietto Minerals (TIE AU): Zhaojin’s Revised and Final Takeover Offer Remains Light

Tietto Minerals Ltd (TIE AU) has disclosed a revised conditional proposal from Zhaojin Mining Industry H (1818 HK) at A$0.68 per share, a 17.2% premium to the previous offer of A$0.58.
The offer is conditional on a 50.1% minimum acceptance condition (which can be waived). The offer is declared best and final.
Despite the bump, the offer is below the IE’s valuation range of A$0.79 to A$0.93 per share. The IE’s valuation range would be around 25% higher at current gold prices.

Ohayo Japan | Escalating Tensions

The Dow Jones Industrial Average marked its sixth consecutive decline amidst fears of further conflict escalation
The yen slipped to the mid-154 range against the dollar on Monday, marking its lowest level since June 1990
Sony Group is preparing to unveil a more potent PS5 console, possibly by the end of this year.

Horizon Robotics IPO Preview: “Journey Together”, Strong Business Position and Market Share Gains

By Andrei Zakharov

Horizon Robotics, a consumer-centric and fast-growing provider of integrated ADAS and AD solutions for passenger vehicles, filed for an IPO and plans to raise up to $500M in Hong Kong.
Horizon Robotics was founded in 2015 by Dr. Yu Kai, Dr. Chang Huang, Ms. Feiwen Tao, and a group of scientists and tech entrepreneurs.
I have a positive view of an upcoming IPO and believe Horizon Robotics is in a great position to capitalize on rapidly growing smart vehicles market in China and worldwide.

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Apr 15

Most Read: Deep Yellow Ltd, Pasona Group, CGN New Energy Holdings, Roland DG Corp, CSPC Innovation Pharmaceutical-A, Azure Minerals, Guangzhou Automobile Group, Tietto Minerals Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Get Your Pasona (2168 JP) Rump For Free
S&P/ASX Index Rebalance Preview: Potential Changes from Now to June
Pasona (2168 JP) Special Div – Too Small to Matter
CGN New Energy (1811 HK): Takeover Rumours
Roland DG (6789) – Brother Still Not Making Friends
Quiddity Leaderboard ChiNext & ChiNext 50 Jun 24: Bullish Names Outperform Bearish Names Again
Merger Arb Mondays (15 Apr) – Azure, Silver Lake, Genex, Boral, China TCM, C&F Logistics, Roland DG
Ohayo Japan | Expect Weak Open
A/H Premium Tracker (To 12 Apr 2024): Liquid AH Premia Still Very Wide, The Right Spreads Behaving
Tietto Minerals (TIE AU): Zhaojin Mining Secures Reg Approvals. Then Bumps

Get Your Pasona (2168 JP) Rump For Free

Dai Ichi (8750 JP) agreed with Pasona (2168 JP) for Pasona to sell its shares back to Benefit One (2412 JP) in a buyback after Dai-Ichi’s Tender Offer for Benefit.
This process gives Pasona a tax advantage versus selling into a Tender Offer at the same price.
What does Pasona take home? ~¥2,822/share versus its last price of ¥2,733/share. Then you have stubs ops (conservatively worth up to ~¥1,960/share) and Pasona’s stake in Bewith (9216 JP) (~¥360/share).

S&P/ASX Index Rebalance Preview: Potential Changes from Now to June

With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.

Pasona (2168 JP) Special Div – Too Small to Matter

On Friday, Pasona Group (2168 JP) announced its expected use of funds into the May 2024 results, including a special dividend plan, investment for growth, and “strengthening the operating platform.”
The plan will disappoint. The stock may get hit hard. The truth is somewhere in the middle. This is where active stewardship matters. So get stewarding.
A special div paid over 5yrs should be paid one-shot, now. If the company has plans worth supporting, set KPIs now, ask for money later. Good plans get good money.

CGN New Energy (1811 HK): Takeover Rumours

Another week, another rumoured (from Bloomberg) takeover. This time it’s for clean energy play CGN New Energy Holdings (1811 HK).
Back in 2020, CGN was subject to a potential privatisation from its SOE-parent – see CGN New Energy: The Latest SOE Clean Energy Play – but it failed to materialise.
A couple of years back, a “valuation system with Chinese characteristics” had the media discussing whether this implied a premium for SOEs and companies aligned with national goals.

Roland DG (6789) – Brother Still Not Making Friends

Taiyo Pacific’s Tender Offer for Roland DG Corp (6789 JP) was to end Friday, but it was extended 10 days.
Roland DG provided an update regarding the status of the Brother overbid. It did not show as much strategic-mindedness as it might have.
Shares are now trading at a post-overbid high. Strategic missteps up the risk but Brother can pay more.

Quiddity Leaderboard ChiNext & ChiNext 50 Jun 24: Bullish Names Outperform Bearish Names Again

By Janaghan Jeyakumar, CFA

The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
In this insight, we take a look at the names leading the race to become ADDs and DELs in the June 2024 index rebal event.

Merger Arb Mondays (15 Apr) – Azure, Silver Lake, Genex, Boral, China TCM, C&F Logistics, Roland DG

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), QV Equities Ltd (QVE AU), Silver Lake Resources (SLR AU), Azure Minerals (AZS AU), China TCM.
Lowest spreads: Tietto Minerals Ltd (TIE AU), Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU).

Ohayo Japan | Expect Weak Open

Global markets are likely to react cautiously following Israel’s interception of over 200 Iranian drones and missile. Bitcoin saw sharp 5%+ decline
Japan’s greenhouse gas emissions hit a record low in fiscal 2022 at 1.14 billion tons of CO2 equivalent, down 2.5% from fiscal 2021
US Steel shareholders have greenlit Nippon Steel’s proposed acquisition, which offers a 40% premium on the trading price at the time of announcement

A/H Premium Tracker (To 12 Apr 2024): Liquid AH Premia Still Very Wide, The Right Spreads Behaving

The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND’s consecutive buying streak ended on Monday 25-March, then started again. NORTHBOUND has started selling (but buying semi tech).
Hs rebounded vs As. AH Premia still wide. Fabulous two-week performance by the Quiddity Portfolio (+2.09% over the two weeks) on a delta 3:1 long H/short A

Tietto Minerals (TIE AU): Zhaojin Mining Secures Reg Approvals. Then Bumps

On the 30 October 2023, Chinese gold producer Zhaojin Mining Industry (1818 HK) pitched a non-binding off-market Offer for Aussie-listed West African gold miner Tietto Minerals (TIE AU).
Zhaojin held 7.02% of shares out, and sought 50.1%. Tietto subsequently rejected the A$0.58/share cash proposal. The IE backed out a fair value range of A$0.793-A$0.927/share.
Zhaojin has now announced it has secured all Chinese regulatory approvals; and that Côte d’Ivoire government approval is not required. Plus Zhaojin bumped terms to A$0.68/share – best and final.

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Apr 14

Most Read: Li Auto , Zijin Mining Group Co Ltd H, Amvis Holdings Inc, Cosco Shipping Energy Transportation Co. Ltd. (H), Genex Power Ltd, Roland DG Corp, Nikkei 225, Ansarada Group Ltd, L’Occitane and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

HSTECH Index Rebalance Preview: Round-Trip Trade of US$1.5bn in June
HSCEI Index Rebalance Preview: One Change or Two in June?
Updated TOPIX Big April Basket Flows; More Big Flows and ¥270bn a Side
COSCO Shipping Energy (1138 HK): Surfing the High Tide
Genex Power (GNX AU): J-Power’s Binding Proposal as Skip’s Intentions Remain Unknown
Roland DG (6789) – Brother Still Not Making Friends
EQD | Nikkei 225 What’s Up Next: Up or Down?
Ansarada (AND AU): Scheme Vote on 14 June
GEMWeekly (12 Apr 2024): South Korea, China Macro; Wipro, TSMC, Samsung Electronics, NetEase
Weekly Deals Digest (14 Apr) – L’Occitane, CGN New Energy, Azure, Genex, C&F Logistics, Riso Kyoiku

HSTECH Index Rebalance Preview: Round-Trip Trade of US$1.5bn in June

With no stocks in outright inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June.
Capping changes will result in a one-way turnover of 5.3% leading to a round-trip trade of US$1.51bn.
Li Auto (2015 HK) is expected to be the largest buy in June following the stock being the largest sell at the March rebalance (also due to capping).

HSCEI Index Rebalance Preview: One Change or Two in June?

SenseTime Group (20 HK) is a potential deletion in June while Zijin Mining Group Co Ltd H (2899 HK) is a potential inclusion.
For yet another review, BeiGene (6160 HK) is a close add with the Velocity Test determining if the stock will be added to the index or not.
Estimated one-way turnover at the rebalance is 2.95% resulting in a one-way trade of HK$1.6bn. Official capping will be based off the close of trading on 4 June.

Updated TOPIX Big April Basket Flows; More Big Flows and ¥270bn a Side

Several days ago I published a piece showing the data for TOPIX flows for April month-end.
This is an update reflecting new data companies have reported to regulators, one large correction to a data provider’s data, and one Very Large Flow.
I believe that the revised data is more accurate. And there is more flow. With a spreadsheet attached.

COSCO Shipping Energy (1138 HK): Surfing the High Tide

By Osbert Tang, CFA

Despite YTD strengths in share price, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) is still cheap at 5.7x PER and 0.9x P/B.
VLCC is forecast to stay undersupplied in FY24 and FY25, supporting the rates and CSET’s profitability. YTD, the VLCC rates have recovered by 19.5%.
LNG transportation generated 19% of FY23 earnings. With 40 more vessels on order, compared with a current fleet of 43, there is immense upside from this segment.

Genex Power (GNX AU): J-Power’s Binding Proposal as Skip’s Intentions Remain Unknown

Genex Power Ltd (GNX AU) has entered a transaction implementation deed with Electric Power Development C (9513 JP) for a scheme (A$0.275) and an off-market takeover offer (A$0.270).
Skip could vote against the scheme due to the low 10% premium to its 2022 offer and Genex’s operational capacity rising by 2.7x by the end of 2024.
The likely scenario is that J-POWER succeeds with its takeover offer. At the last close, the gross spread of the scheme and takeover offer was 3.8% and 1.9%, respectively.

Roland DG (6789) – Brother Still Not Making Friends

Taiyo Pacific’s Tender Offer for Roland DG Corp (6789 JP) was to end Friday, but it was extended 10 days.
Roland DG provided an update regarding the status of the Brother overbid. It did not show as much strategic-mindedness as it might have.
Shares are now trading at a post-overbid high. Strategic missteps up the risk but Brother can pay more.

EQD | Nikkei 225 What’s Up Next: Up or Down?

By Nico Rosti

The Nikkei 225 Index last week bounced back, after a 2-weeks down pullback.
The index is at a fork in our view: it could go higher from here, but we would like to see a sustained, multi-week rally to be convinced.
If doubt about this potential rally continuation is strong, target the 40500-40800 price area to place SHORT trades against the index.

Ansarada (AND AU): Scheme Vote on 14 June

The Ansarada Group Ltd (AND AU) IE considers Datasite’s A$2.50 scheme offer fair and reasonable. However, the inter-conditional carve-out transaction is NOT fair but reasonable.
ACCC clearance (findings on 6 June) is a prerequisite for FIRB approval (scheme condition). As Datasite has a limited Australian presence, ACCC approval should be forthcoming.
The offer is attractive, with no vocal shareholder opposition. At the last close and for the 1 July payment, the gross/annualised spread was 2.5%/12.2%.

GEMWeekly (12 Apr 2024): South Korea, China Macro; Wipro, TSMC, Samsung Electronics, NetEase

By Wium Malan, CFA

The Global Emerging Markets Weekly summarizes the key news and related developments impacting the largest countries and constituents of the Global Emerging Markets equity indices.
Macro data points: South Korean interest rates, Chinese inflation data.
Companies mentioned:Wipro Ltd (WPRO IN), Taiwan Semiconductor (TSMC) (2330 TT), Samsung Electronics (005930 KS), NetEase (9999 HK)

Weekly Deals Digest (14 Apr) – L’Occitane, CGN New Energy, Azure, Genex, C&F Logistics, Riso Kyoiku

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments: Kokusai Electric (6525 JP) and J&T Global Express (1519 HK) lock-ups. HD Hyundai Marine Solution (443060 KS), ZEEKR (ZK US)and Sichuan Baicha Baidao Industrial (SCBCBDID CH) IPOs.
Event-Driven developments L’Occitane (973 HK), CGN New Energy Holdings (1811 HK), Azure Minerals (AZS AU), Genex Power Ltd (GNX AU), Riso Kyoiku (4714 JP), Chilled & Frozen Logistics Holdings (9099 JP).

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Apr 13

Most Read: Mitsui Fudosan, Deep Yellow Ltd, Fast Retailing, CGN New Energy Holdings, Bandhan Bank Ltd, Melco International Development, Boral Ltd, The Keepers Holdings, Amvis Holdings Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan
S&P/ASX Index Rebalance Preview: Potential Changes from Now to June
CGN New Energy (1811 HK): Evaluating a Potential Privatisation
Fast Retailing(9983) | Not So Fast
CGN New Energy (1811 HK): Takeover Rumours
NIFTY Bank Index Rebalance Preview: Canara Bank Still Cheap; Double Deletion for Bandhan?
StubWorld: Melco Gains As Lawrence Ho Buys
Boral Backs Seven’s “Enhanced” Offer
Keepers Holdings (KEEPR PM) FY23: 30% YoY, Net Cash, Growth 6.8x PE, And A 7.6% Dividend Yield
Updated TOPIX Big April Basket Flows; More Big Flows and ¥270bn a Side

JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan

9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback.
The stock popped 7% the next day to ¥1302, on the highest volume since the covid crash, hesitated a day, then powered almost 20% higher through the end of March.
Today, Mitsui Fudosan responded with an Amendment to their Plan out to 2030. It has a higher dividend, a share buyback, higher EPS target growth, and higher ROE target. But…

S&P/ASX Index Rebalance Preview: Potential Changes from Now to June

With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.

CGN New Energy (1811 HK): Evaluating a Potential Privatisation

Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking CGN New Energy Holdings (1811 HK) private.
CGN New Energy shares have underperformed the median peer’s shares since the announcement of CGN’s previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.
The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.

Fast Retailing(9983) | Not So Fast

Fast Retail missed analyst estimates for Q2 sales and operating profit. Revenue growth slowed to 5% YoY
Full year operating profit guidance maintained at Y450 billion, just slightly below the street
The stock is trading at 27x EV/EBIT, in-line with historical averages, but still expensive in absolute terms and versus global peers

CGN New Energy (1811 HK): Takeover Rumours

Another week, another rumoured (from Bloomberg) takeover. This time it’s for clean energy play CGN New Energy Holdings (1811 HK).
Back in 2020, CGN was subject to a potential privatisation from its SOE-parent – see CGN New Energy: The Latest SOE Clean Energy Play – but it failed to materialise.
A couple of years back, a “valuation system with Chinese characteristics” had the media discussing whether this implied a premium for SOEs and companies aligned with national goals.

NIFTY Bank Index Rebalance Preview: Canara Bank Still Cheap; Double Deletion for Bandhan?

Canara Bank (CBK IN) should replace Bandhan Bank Ltd (BANDHAN IN) in the NSE Nifty Bank Index (NSEBANK INDEX) at the September rebalance.
Passive trackers will need to buy nearly 2 days of ADV in Canara Bank (CBK IN) while selling over 1 day of ADV in Bandhan Bank Ltd (BANDHAN IN).
Canara Bank (CBK IN) is one of the best performing banking stocks while Bandhan Bank Ltd (BANDHAN IN) has been the worst performer over the last two years.

StubWorld: Melco Gains As Lawrence Ho Buys

Melco International (200 HK) gains as Lawrence Ho increases his position. Melco and 51.1%-held Melco Resorts (MLCO US) are the two worst performing gaming stocks over the past year.
Preceding my comments on Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Boral Backs Seven’s “Enhanced” Offer

After Boral (BLD AU) rejected Seven Group (SVW AU)‘s cash/scrip Offer, Seven slammed the Independent Expert’s report, calling the Target Statement “unbalanced, selective and risks fundamentally misleading Boral minority shareholders“.
Seven has now waived certain tendering thresholds, increasing the cash terms to A$1.70/share from A$1.50/share. Boral will also pay a fully-franked dividend of A$0.26/share, providing A$0.11/share of franking credits.
The IE now considers the Offer to be reasonable. Boral’s board recommends shareholders to accept. This is done.

Keepers Holdings (KEEPR PM) FY23: 30% YoY, Net Cash, Growth 6.8x PE, And A 7.6% Dividend Yield

By Sameer Taneja

The Keepers Holdings (KEEPR PM) demonstrated a 5-year CAGR of 16%/25% revenue/profit growth with an ROE averaging 20%.
FY23 surpassed our expectations with 17%/30% revenue and net profit growth. 4Q 2023 high season revenue and profit growth was an astounding 21%/75% YoY.
The stocks trades at 6.9x/6.2x PE FY23/FY24e with a 7.5% dividend yield (assuming ten centavos/dividend based on FY23 earnings for FY24 and a 50% payout ratio).

Updated TOPIX Big April Basket Flows; More Big Flows and ¥270bn a Side

Several days ago I published a piece showing the data for TOPIX flows for April month-end.
This is an update reflecting new data companies have reported to regulators, one large correction to a data provider’s data, and one Very Large Flow.
I believe that the revised data is more accurate. And there is more flow. With a spreadsheet attached.

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Apr 12

Most Read: Socionext, Mitsui Fudosan, Sompo Holdings, Alibaba Group Holding , Bank of Communications , CGN New Energy Holdings, Fast Retailing, Bharti Hexacom, Melco International Development and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan
Sompo Holdings Cross-Shareholding – At Least US$8bn of Cross-Shareholding to Sell
Spending on Customers Precedes Customer Spending
EM Watch: China is preparing something BIG!
SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
CGN New Energy (1811 HK): Evaluating a Potential Privatisation
Fast Retailing(9983) | Not So Fast
Bharti Hexacom IPO: Index Inclusion Timeline
StubWorld: Melco Gains As Lawrence Ho Buys

Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks

The changes to the Nikkei 225 Average for the March 2024 Review were announced today after the close. A little earlier than I expected.
Socionext, Disco, Zozo IN; Takara Hldgs, Sumi Osaka Cement, Pacific Metals OUT. Nitori PAF increase. US$4bn+ to trade one way on 29Mar close. One interesting surprise.
Overall more impactful than it looks. And it changes the front-end arithmetic on Fast Retailing (9983 JP). There may be fun on the DELETEs.

JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan

9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback.
The stock popped 7% the next day to ¥1302, on the highest volume since the covid crash, hesitated a day, then powered almost 20% higher through the end of March.
Today, Mitsui Fudosan responded with an Amendment to their Plan out to 2030. It has a higher dividend, a share buyback, higher EPS target growth, and higher ROE target. But…

Sompo Holdings Cross-Shareholding – At Least US$8bn of Cross-Shareholding to Sell

The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
Sompo Holdings (8630 JP) had a stake over US$100m in at least 16 listed Japanese stocks, amounting to a total of around US$6bn.
In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

Spending on Customers Precedes Customer Spending

By Ying Pan

We expect Alibaba to report CY1Q24 top-line, non-GAAP EBITA and non-GAAP net income in-line, (14.2%) and (7.4%) vs. consensus. We cut non-GAAP EBITA by 10% and kept topline unchanged;
BABA is prioritizing growth of both AliCloud and cross-border ecommerce (AliExpress), which will weaken profitability in the near-term but is the right thing to do.
BABA is transforming itself into Chinese Microsoft with hopes of e-commerce mainly pinned on overseas. We maintain BUY and US$ 85 TP, implying 9.5x CY24 P/E.

EM Watch: China is preparing something BIG!

By Andreas Steno

The below chart of ours have made the rounds in recent days and weeks as China seems to be preparing for something big given the heavy restocking efforts in Copper space.
As the price trends are diverging in copper versus steel and iron ore, the strategic initiatives of China are becoming increasingly evident in price action across the commodity complex, but we are yet to fully understand and accept the ramifications for global rates.
We have read plenty of bad takes on why China is building up copper reserves and the most obvious reason seems to be neglected by many.

SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade

With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.

CGN New Energy (1811 HK): Evaluating a Potential Privatisation

Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking CGN New Energy Holdings (1811 HK) private.
CGN New Energy shares have underperformed the median peer’s shares since the announcement of CGN’s previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.
The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.

Fast Retailing(9983) | Not So Fast

Fast Retail missed analyst estimates for Q2 sales and operating profit. Revenue growth slowed to 5% YoY
Full year operating profit guidance maintained at Y450 billion, just slightly below the street
The stock is trading at 27x EV/EBIT, in-line with historical averages, but still expensive in absolute terms and versus global peers

Bharti Hexacom IPO: Index Inclusion Timeline

Telecommunications Consultants India Limited (TCIL) raised US$513m by selling 15% of the shares outstanding in Bharti Hexacom (6597372Z IN). Post the sale, they still hold 15% of the company.
Bharti Hexacom (6597372Z IN) will start trading on 12 April and the grey market indicates the stock will open at INR 664/share, 16.5% higher than the IPO price.
Bharti Hexacom should be added to one smallcap index in August and another smallcap index in December. A move above INR 700/share could result in midcap inclusion in December.

StubWorld: Melco Gains As Lawrence Ho Buys

Melco International (200 HK) gains as Lawrence Ho increases his position. Melco and 51.1%-held Melco Resorts (MLCO US) are the two worst performing gaming stocks over the past year.
Preceding my comments on Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

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Apr 11

Most Read: China Traditional Chinese Medicine, Deep Yellow Ltd, HD Hyundai Marine Solution , KT Corp, Aozora Bank Ltd, 3peak , Chilled & Frozen Logistics Holdings, Bank of Communications and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

China TCM (570.HK) – Latest Updates on Privatization and the Potential Merger with Taiji Group
Let’s Talk Aussie Franking Credits
S&P/ASX Index Rebalance Preview: Potential Changes from Now to June
HD Hyundai Marine Solution IPO Valuation Analysis
Early Sign of AI GPU Market Inflection Point?
KT’s Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow
JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere, But No Sales Yet
Quiddity Leaderboard STAR 50 Jun 24: 3 ADDs/DELs Possible but Should Be Monitored Closely
Chilled & Frozen Logistics (9099 JP): Pass The🍿as the Board Responds to AZ-COM Maruwa (9090 JP)
SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade

China TCM (570.HK) – Latest Updates on Privatization and the Potential Merger with Taiji Group

By Xinyao (Criss) Wang

Since “no dividend was proposed for the year ended 31 December 2023”, the privatization is highly likely to succeed. It may not be wise for investors to bet against privatization.
The recent high-level personnel changes in Taiji is “thought-provoking”, which seems to be preparing for the next step of integrating with China TCM. Spin-offs and integrations are expected within Taiji.
We analyzed possible playbook. In this way, CNPGC is able to solve the problem of horizontal competition. China TCM could also relist in A-share to gain higher valuations/better liquidity.

Let’s Talk Aussie Franking Credits

To an Australian individual investor, franking credits simply recognise tax already paid by a company on their earnings. These credits may reduce tax you would otherwise pay on dividend income.
This dividend imputation system prevents double taxation and essentially treats company tax paid as a prepayment of shareholder tax.
The system makes a lot of sense. It’s a curious thing so few countries have adopted a similar corporate tax structure.

S&P/ASX Index Rebalance Preview: Potential Changes from Now to June

With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.

HD Hyundai Marine Solution IPO Valuation Analysis

Our base case valuation of HD Hyundai Marine Solution is target price of 98,254 won per share, representing an 18% upside from the high end of the IPO price range.
The company’s ROE averaged 67% in 2022 and 2023. In comparison, the comps’ ROE averaged 10.6% in the same period. [HD Hyundai Marine Solution > Comps]
Our base case valuation is based on 24.7x P/E (comps’ average) using our estimated net profit of 178.7 billion won for the company in 2024.

Early Sign of AI GPU Market Inflection Point?

By Andrew Lu

Taiwan Dell said “AI GPU shortage issue has been resolved. The lead time has been cut from 40 weeks by the end of 2023 to 8-12 weeks or less now.
We see this news short term positive but medium term negative to AI GPU supply chain vendors but need more information to confirm if this is an inflection point.
1. Taiwan Dell got priority supply? 2. Earlier overbooking over? 3. Lead time cut by supply upside? 4. Cooling company said the same; 5. Will lead time continue to shrink?

KT’s Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow

By Sanghyun Park

KT’s foreign ownership declined since January, below 7.5% by last month. If it remains, the adjustment factor halves to 0.25, impacting KT’s Global Index weight.
With the May review screening date estimated for April 17th, swift reversal of foreign inflows seems improbable. Thus, KT’s adjustment factor dropping to 0.25 is likely.
This could lead to an outflow of 1.6M shares, approximately 3x ADTV. Given the prolonged price impact on telcos, exploring a long-short setup with SKT might be prudent.

JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere, But No Sales Yet

Just under 6 weeks ago, Japanese activist Murakami-san’s company and daughter reported a 5+% stake in Aozora Bank Ltd (8304 JP). They bought after a sharp dip caused CRE-related writedowns.
As is normal, they bought more (now 8.92%) post-5%-filing-trigger, but before the actual first filing. And as is normal these days, the stock popped on the first filing.
Then it fell, and hasn’t recovered much. So far, on a weighted basis, they are up 1% vs TOPIX Banks Index.

Quiddity Leaderboard STAR 50 Jun 24: 3 ADDs/DELs Possible but Should Be Monitored Closely

By Janaghan Jeyakumar, CFA

STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the June 2024 index rebal event.
I currently expect three changes resulting in a one-way flow of around US$531mn but there is still room for the expectations to change.

Chilled & Frozen Logistics (9099 JP): Pass The🍿as the Board Responds to AZ-COM Maruwa (9090 JP)

The Chilled & Frozen Logistics Holdings (9099 JP) Board has responded with several questions regarding AZ-Com Maruwa Holdings (9090 JP)’s pre-conditional hostile offer of JPY3,000 per share.
The Board questions the transaction’s schedule, terms and potential synergies. The Board has also used the ruse that due diligence access would justify a higher offer price.
Expect several rounds of Q&A and a delay to the tender start. If shares continue trading through terms ahead of the tender start, AZ-COM Maruwa will likely have to bump.

SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade

With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.

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Apr 10

Most Read: L’Occitane, Ryohin Keikaku, Riso Kyoiku, Aichi Financial Group , Hainan Jinpan Smart Technology, Bangchak Corporation, Shanghai Electric Group Company, HD Hyundai Marine Solution , WT Microelectronics, Deep Yellow Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

L’Occitane (973 HK): Blackstone Pondering an Offer
Sep24 Nikkei 225 Rebal – Now 1 ADD, 1 DELETE; Fastie+TEL Still Where the Fun Is
Riso Kyoiku (4714) Partial Tender (¥320/Sh) Followed by Third Party Dilution To Get Hulic to 51%
The TOPIX Big April Basket Flows: ¥200bn a Side Including Many Multi-ADV Flows
STAR100 Index Rebalance Preview: 10 Changes as Potential Adds Outperform
SET50 Index Rebalance Preview: Three Potential Changes in June
Quiddity Leaderboard CSI 300/500 Jun 24: SHORTs Down 11% Vs Index Since Mid-Feb; Change the Hedge
HD Hyundai Marine Solution IPO Valuation Analysis
WT Micro Placement – Another Well-Flagged Taiwan GDR Offering, This One Is Easier to Digest
S&P/ASX Index Rebalance Preview: Potential Changes from Now to June

L’Occitane (973 HK): Blackstone Pondering an Offer

Bloomberg reports that L’Occitane (973 HK) draws takeover interest from Blackstone (BX US), which is considering partnering with Chairman and largest shareholder Reinold Geiger.
Blackstone needs an attractive takeover premium due to the presence of significant disinterested shareholders (Mr. Geiger and Acatis KVG).
Shareholders will be wary of the latest rumour due to Mr Geiger’s aborted offer on 4 September 2023. Nevertheless, the valuation is undemanding compared to peer multiples.

Sep24 Nikkei 225 Rebal – Now 1 ADD, 1 DELETE; Fastie+TEL Still Where the Fun Is

The March 2024 rebal is done and dusted. When announced, there were 2 prospective DELETEs for Sep 2024. Now there is only one expected DELETE, Nippon Paper Industries (3863 JP).
The one likely inclusion is therefore Ryohin Keikaku (7453 JP). But there is more fun afoot with Fast Retailing (9983 JP) and Tokyo Electron (8035 JP).
The two stocks – of totally different sectors – interact somewhat, both in determining Nikkei 225 direction, and their relative potential selldowns.

Riso Kyoiku (4714) Partial Tender (¥320/Sh) Followed by Third Party Dilution To Get Hulic to 51%

Today, cram school operator Riso Kyoiku (4714 JP) and 20% owner real estate developer Hulic Co Ltd (3003 JP) amended their Capital and Business Alliance agreement.
Hulic will buy 25.5% of shares out in a Partial Offer at +43.5% vs last. Then post-tender, they will buy shares at last from the company to go to 51.%
The founder will sell his 10%. The rest is interesting. It’s a high ROE high div stock. Some own it from higher. Pro-ration is tough to estimate. But we try.

The TOPIX Big April Basket Flows: ¥200bn a Side Including Many Multi-ADV Flows

Every year in April there is an interesting phenomenon with TOPIX. It is what Janaghan Jeyakumar, CFA calls “The Big April Basket.” The TSE re-assesses Liquidity Factor Coefficients.
It also does a FFW change, and this year it has Phased Weight Reductions for those slowly leaving TOPIX and PWR re-inclusions for those identified last October as going back.
Janaghan had 18 “High Conviction” LF removals. All were hits. They are upweights. Then there are 34 changes to FFW coefficients.

STAR100 Index Rebalance Preview: 10 Changes as Potential Adds Outperform

The review period for the June rebalance ends 30 April. We expect the changes to be announced 31 May with the implementation taking place after the close on 14 June.
We forecast 10 changes for the index, including migrations between the STAR 100 Index and the SSE STAR50 (STAR50 INDEX).
Excluding the migrations, the potential adds have outperformed the potential deletes over the last few months and that could continue as we head to the end of the review period.

SET50 Index Rebalance Preview: Three Potential Changes in June

Nearing the halfway mark in the review period, we see 3 potential changes for the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) at the June rebalance.
Passive trackers will need to buy between 1.2-4.5 days of ADV on the inclusions and sell 0.9-1.3 days of ADV on the deletions.
Berli Jucker (BJC TB) continues to be a close add on liquidity while Gulf Energy Development (GULF TB) and Intouch Holdings (INTUCH TB) continue to be close deletes.

Quiddity Leaderboard CSI 300/500 Jun 24: SHORTs Down 11% Vs Index Since Mid-Feb; Change the Hedge

By Janaghan Jeyakumar, CFA

CSI 300 represents the 300 largest stocks by marketcap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500. There is subjectivity.
Here we look at potential ADDs/DELs for the CSI 300/500 rebalance in June 2024. With 93% of time passed, I expect 11 changes for CSI300, 50 for CSI 500.
Some names have changed since my last insight, but the long/short trades recommended eight weeks ago gained 11.26% since. We make small changes this time.

HD Hyundai Marine Solution IPO Valuation Analysis

Our base case valuation of HD Hyundai Marine Solution is target price of 98,254 won per share, representing an 18% upside from the high end of the IPO price range.
The company’s ROE averaged 67% in 2022 and 2023. In comparison, the comps’ ROE averaged 10.6% in the same period. [HD Hyundai Marine Solution > Comps]
Our base case valuation is based on 24.7x P/E (comps’ average) using our estimated net profit of 178.7 billion won for the company in 2024.

WT Micro Placement – Another Well-Flagged Taiwan GDR Offering, This One Is Easier to Digest

By Clarence Chu

WT Microelectronics (3036 TT) is looking to raise US$341m in its GDR offering. The proceeds will be used to purchase raw materials overseas.
The deal is a very well flagged one, and will be a relatively small one to digest at just 4.8 days of the stock’s three month ADV.
In this note, we run the deal through our ECM framework and comment on the deal dynamics.

S&P/ASX Index Rebalance Preview: Potential Changes from Now to June